Cisco Systems (Nasdaq: CSCO), the world’s largest maker of computer networking gear, said Sunday it is buying Meraki for $1.2 billion to expand its ability to let customers compute in the cloud and manage Wi-Fi networks remotely.

Cloud computing refers to the increasingly popular practice of storing software applications in remote data centers that are accessed over the Internet instead of installing programs on individual machines.

Cisco, the world’s largest maker of computer-networking equipment, is using a combination of cash and retention-based incentives to pay for the acquisition, the San Jose, California-based company said Sunday in a statement.

Meraki will form Cisco’s new Cloud Networking group, led by Meraki CEO Sanjit Biswas. The company said on its website it had originally planned to remain independent and go public, but joining Cisco will help it achieve its goal of hitting $1 billion in revenue a year.

Rob Soderbery, senior vice president, Cisco Enterprise Networking Group, said in a statement, “Meraki’s solution was built from the ground up optimized for cloud, with tremendous scale, and is already in use by thousands of customers to manage hundreds of thousands of devices.”

Chief Executive Officer John Chambers is seeking to capitalize on the boom in demand for smartphones and tablets in the workplace by snapping up a company that helps businesses manage security and wireless access points via the Internet. The deal is aimed at broadening his customer base as Cisco cuts costs, shuts underperforming divisions and trims prices to fend off rivals such as Hewlett-Packard Co. and Juniper Networks Inc.

“The valuation reflects that Wi-Fi, as a market, has very compelling growth prospects ahead,” said Erik Suppiger, an analyst at JMP Securities LLC in San Francisco who rates Cisco market perform.

San Francisco-based Meraki expects about $100 million in bookings this year and its employee base ballooned to 330 from 120 this year, Meraki Chief Executive Officer Sanjit Biswas wrote in a letter to employees discussing the deal.

Cisco’s Approach

Cisco approached Meraki with the offer several weeks ago with the pitch of extending the company’s reach with worldwide distribution through Cisco’s sales apparatus. Cisco was attracted by Meraki’s technology and financials, Biswas wrote.

The company has offices in New York, London and Mexico and was formed in 2006 by doctoral candidates from Massachusetts Institute of Technology. Its backers include Google Inc. and venture capital firm Sequoia Capital. Cisco expects the deal to close in the second quarter of next year.

Cisco, which had planned to announce the acquisition later today, inadvertently posted a blog about it, according to Karen Tillman, a spokeswoman for the company.

The deal comes as the computer-networking industry is undergoing a shift toward software that eliminates the need for some expensive types of equipment and gives administrators more remote control over their networks. Established rivals and startups have been putting pressure on Cisco’s profit margins, forcing the company to undergo a restructuring.

Chambers has cut 7,800 jobs over the past year and a half, closed businesses such as the Flip video-camera unit and eliminated bureaucratic bottlenecks in a bid to speed decision- making and focus Cisco’s resources on the company’s key networking businesses.

The purchase follows its $125 million purchase last week of Cloupia, which develops software that helps data center operators manage their resources.

Cisco operates its largest campus outside its California headquarters in RTP.

[CISCO ARCHIVE: Check out 10 years of Cisco stories as reported in WRAL Tech Wire.]

(Bloomberg and The AP contributed to this report.)